DETERMINANTS OF DIVIDEND PAYOUT POLICY IN PUBLIC LTD BANKS IN KENYA: A CASE STUDY OF CFC STANBIC BANK

Abstract

Dividend policy has been analyzed for many decades, but no universally accepted explanation for companies observed dividend behavior has been established. Many theories and models have been put forth to examine the numerous facets of dividend study. This study sought to establish the determinants of dividend payout policy in public limited banks by examining the effect of liquidity, profitability, firm size and leverage on dividend payout. The study adopted a descriptive research design. The target population of the study was CFC Stanbic Bank where secondary data was for a period of eleven years (2003-2013). The data was analyzed qualitatively as well as quantitatively using both descriptive statistics and inferential statistics. The results showed that there liquidity was negatively (β =-1.0094) and significantly (p-value = 0.041) related to dividend payout while profitability was positively (β = 0.723) and significantly related (p-value = 0.018) to dividend payout. The results further indicated that firm size is positive (β = 0.794) and significantly (p-value = 0.034) related with the dividend payout. Finally, it was also inferred that leverage had a positive (β = 1.751) and significant (p-value = 0.004) relationship with the dividend payout. From the study findings it was recommended that; first, companies should maintain an optimal level of market liquidity as market liquidity has a negative influence on dividend payout. Secondly, since profitability has a positive and significant influence on dividend payout then companies should strive to engage in profitable ventures so as to be in a position to pay dividends to the shareholders. Lastly, the study recommends that leverage (debt/equity ratio) should be held at an optimal level so that the firm is in a position to pay its shareholders dividends, which is a return for their investments.